Coles (ASX:COL) and Woolworths (ASX:WOW) shares fell by more than 3% yesterday following the ACCC's bombshell announcement of legal action against the supermarket giants, alleging they misled customers through their discount offers.
Woolworths’ shares were down 3.9% at one stage, and Coles’ shares dropped by more than 3.2%. Wesfarmers, another retail giant (owner of Bunnings and Kmart), saw its shares dip 1.5%, while Metcash, which controls supermarkets, liquor, and hardware businesses, experienced only a 0.7% decrease.
No one mentioned the phrase 'price gouging' in their statements, but there were plenty of claims about it online and on talkback radio.
Six government inquiries into supermarkets have failed to examine the types of pricing activities the ACCC is now alleging. The high-profile inquiry conducted by Professor Alan Fels on behalf of the ACTU also didn’t mention what the ACCC claims to have found.
Now, the competition regulator has dealt a blow to the reputations of the country's two biggest supermarket operators—Coles and Woolworths. If the claims are proven in court, they could very well change the entire nature of retailing in Australia.
At the heart of the ACCC's case is the allegation that both companies engaged in a sustained smoke-and-mirrors sleight of hand, disguising the true nature of price discounts on a range of everyday consumer staples. From Tim Tams to Twisties, and from cat food to Coca-Cola, the Commission claims the duo's aggressive marketing of their "lower-for-longer" price discounts was designed to bait consumers into believing they were getting better value—when, in fact, they were not.
Misleading consumers is illegal under Australian law. The claims of fake discounts against these two retail giants are on par with other corporate allegations, such as Qantas' 'ghost flights' or claims that retailers like Harvey Norman and JB Hi-Fi were selling worthless extended warranties.
The ACCC's action against Woolworths and Coles for allegedly misleading shoppers with illusory discounts on some products is based on extensive research and includes hundreds of examples.
The ACCC claims that the supermarkets artificially increased prices on certain products for a relatively short period, after which they dropped the prices back to a "regular" level, which was then advertised as "Prices Dropped" or "Down Down."
The ACCC's action against Woolworths covers the period from September 2021 to May 2023 and involves 266 products. The case against Coles spans from February 2022 to May 2023 and includes 245 products.
Coles has stated that it intends to defend the civil proceedings commenced by the competition regulator, which allege the supermarket giant misled customers through its 'Down Down' promotion. Woolworths CEO Amanda Bardwell, however, appears more amenable to discussions rather than legal resistance at this stage.
Coles told the ASX that: "The allegations relate to a period of significant cost inflation, during which Coles was receiving a large number of cost price increases from our suppliers. In addition, Coles' own costs were rising, which led to an increase in the retail price of many products.
"Coles sought to strike an appropriate balance between managing the impact of cost price increases on retail prices and offering value to customers through the recommencement of promotional activity as soon as possible after establishing the new non-promotional price.
"In line with our values, Coles takes compliance with Australian Consumer Law extremely seriously and places great emphasis on building trust with all stakeholders, especially our customers."
The retailer has confirmed it will defend the case.
Woolworths’ CEO, Amanda Bardwell, said in a company statement that the retailer will "carefully review" the claims made by the ACCC, which allege that Woolworths' 'Prices Dropped' promotion between 2021 and 2023 misled customers.
"Our Prices Dropped program was introduced to provide our customers with great everyday value on their favourite products," Ms Bardwell stated.
"We remain committed to offering many ways for customers to save at the checkout, including thousands of weekly specials, everyday low prices on household essentials, a great value own-brand range, and through our Everyday Rewards program," she added.
